Outsourcing more expensive than in-house service

Gartner on customer service outsourcing

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Businesses looking to save money by outsourcing customer service functions are risking losing customers and paying even more for the privilege.

Although researchers from Gartner predict the market for outsourcing will grow from $8.4bn in 2004 to $12.2bn in 2007 they say 80 per cent of projects started to save money will fail to do so.

Despite the growth in outsourcing the overseas component of this will remain small. In 2005 less than two per cent of the call centre market is made up of offshore companies, rising to less than five per cent in 2007.

Up to 2008, 60 per cent of firms that outsource sections of customer-facing processes will suffer customer defections and other hidden costs which will outweigh any possible savings.

Gartner points out that it is possible to save between 25 and 30 per cent if outsourcing is carried out carefully. But badly managed projects can "reduce the quality of the customer experience, dilute the brand values of the company and fail to deliver cost savings."

Alexa Bona, the report's author, also warned that staff turnover was far higher in offshore call centres than in-house departments. In-house call centres typically lose 19 to 25 per cent of staff each year while offshore centres can see 70 to 80 per cent turnover.

She further warns that 70 per cent of the top 15 Indian-owned firms offering call centre services will be bought, merged or marginalised by the end of 2005.

Bona warned organisations should not underestimate the time required to make an outsourced relationship work.®